Tax break likely for auto assemblers, tyre makers

The government is likely to offer a tax break to the automobile, tyre and bicycle industries to promote growth and investment in the sectors, an official said yesterday.

Finance Minister AMA Muhith may roll out the tax benefits while placing the budget proposal in parliament for fiscal 2015-16 on June 4.

"We focused on the new areas considering their potential to boost industrialisation and create jobs," said the official of the finance ministry.

The initiative comes years after state-run Pragati Industries started assembling Mitsubishi's Pajero Sport vehicles for the local market.

Industrial giant PHP signed a deal with Malaysia's Proton in March to assemble 1,200 sedans a year at its factory in Chittagong -- a move expected to reduce the country's dependence on imported cars.

Similarly, Bangladesh's dependence on tyre imports is likely to decline in the days ahead due to a rise in local manufacturing.

Currently, companies such as Apex Husain, Gazi Group, Meghna Group and Rupsha Tyre make tyres to cater to light trucks, minibuses, microbuses, motorcycles, auto rickshaws and the easy bike tyre segment.

In addition to local players, India's tyre giant CEAT is setting up a plant in Bangladesh in partnership with AK Khan & Company.

Bangladesh spends around Tk 1,000 crore to import more than 15 lakh pieces of tyres a year, mainly from India, Japan and China, according to importers, distributors and sellers.

To boost exports, the tax benefit is also likely to be extended to bicycle manufacturing.

Officials said the tax waiver would encourage further investment into these areas.

The government also plans to slap on advance income tax on imports of commodities such as rice, wheat and sugar.

Currently, 211 items are exempted from AIT at the import stage.

Except for these goods, 5 percent AIT is applicable to the value of most goods imported into Bangladesh, according to the National Board of Revenue.

The government may impose AIT at varied rates on a number of items that are now on the exemption list, aiming to attain the increased revenue collection target at Tk 176,370 crore for the next fiscal year.

Taxmen plan to collect direct tax at Tk 65,932 crore for the next fiscal year, up 34 percent from the revised target of Tk 49,264 crore.

"We expect to gather a handsome amount by imposing AIT on certain items that are free from AIT at the import stage now," said the finance ministry official.

The tax authority initiated a move last year to exclude 30 imported goods from the AIT exemption list, finding that some goods are not essential, while some items, such as rice, are locally grown in enough quantities to meet domestic demand. Syed Md Aminul Karim, a former member of income tax policy at NBR, supported the bid.

"It is necessary to impose AIT on some items to encourage domestic production and job creation," Karim said, adding that the list contains some goods that are neither essential nor lifesaving items.

Towfiqul Islam Khan, research fellow at the Centre for Policy Dialogue, said: "Since advance income tax can be adjusted with final settlement of income tax returns, it should not have an impact on consumer prices or profitability of importers."

Khan said bringing more sectors and commodities under AIT is an appropriate move in Bangladesh, where a large number of taxable earners are not paying income tax or submitting returns.

"However, the NBR should also take necessary steps to simplify the income tax rebate system."